Greece says a deal is close — but Germany says nein

Athens believes a bailout deal is close after Greek Prime
Minister Alexis Tsipras met German Chancellor Angela Merkel in
Riga, the Latvian capital, during a European summit on Thursday
night — but not all parties agree.

German Finance Minister Wolfgang Schaeuble poured cold water over
those comments on Thursday,
telling Reuters that all of the optimism was coming from the
Greek side of the talks.

"There is not yet any substance to the mere announcement that we
are closer to an agreement. This is still within the realms of
atmosphere," Schaeuble added.

These candid statements are not entirely surprising as Schaeuble
is often seen as the attack dog of the Eurogroup, willing to push
a harder line than other members. But this morning, similar
comments came from a more senior (and generally reserved)
source: German Chancellor Angela Merkel.

Merkel said there was "intensive
work" still to be done between Greece and its creditors (the
European Commission, International Monetary Fund, and European
Central Bank). According to AFP she also said that "there
is still a lot to do" before a deal.

That echoes the line that EU Commission Vice
President Valdis
Dombrovskis gave Bloomberg Friday morning, saying "progress
was not as fast as it should have been," and that the country
must present a more comprehensive reform package.

In a note on Thursday, Bank of America analysts indicated
some of the political difficulties in getting a deal done, with
the government in Athens having to consider its own internal
politics:

We believe that internal opposition to a compromise is the key
reason for the inability to have a deal on the review so far. The
Greek government has been trying to reach an agreement that the
Greek parliament will be able to approve without the help of
opposition parliamentarians, as the latter could put the current
government at risk. This has proved to be impossible so far. Even
if the so-called left platform in Syriza, which includes 30 of
the 149 Syriza parliamentarians, change their strong views and
vote for a program, we are concerned about other Syriza
parliamentarians, who are not necessarily constrained by party
discipline— Syriza used to be a coalition of parties until
recently.

Unless the government's parliamentarians make a U-turn, we see
substantial risks in the weeks ahead. We do not expect a U-turn
from the Eurogroup and the IMF to accept the Greek government's
red lines, although they could show some flexibility. Negative
scenarios include a collapse of program negotiations, a failed
parliamentary vote on a deal, a referendum on a deal, or a
collapse of the Greek government and substantial uncertainty
until the formation of a new government.

But there's not much time left for this circle to be squared.
Greece has another payment to make to the IMF on June 5 that the
government has effectively admitted it can't make. To make the
last payment, it had to dig into an IMF reserve fund.

Last week, the IMF's main stumbling blocks were listed as labour
market reforms and the Greek pension system. There's been very
little since then to suggest any significant progress on these
fronts, or that the IMF is any less serious about demanding them.

The payments coming in the two weeks after June 5 are twice as
large as the last one Athens has made and it seems extremely
unlikely that the government can manage them without help —
failure to do so would mean default. Most analysts do believe
that a deal will be reached, but it's getting increasingly tense
as June approaches.

Here's a calendar from BNP Paribas showing just how much debt
comes due in the two weeks after June 5: